Tax Saving Fixed Deposit | To encourage retailers to reduce the interest on fixed deposits, the Ministry 

of Finance announced in 2006 that all fixed deposits with a term of less than 5 years would be eligible 

for exemption under Section 80C of the Income Tax Act. This type of fixed deposit is popularly known 

as tax saving fixed deposit. 

Fixed Deposit

This announcement was made by the notification dated 23/2006, through which the Ministry of Finance announced the Bank Deposit Term Scheme 2000-2006. This scheme sets clear guidelines for investing in this type of tax saving fixed deposit.

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Tax Savings with Fixed Deposit including Salary Structure of the W.B.Govt Employees
Fixed Deposits for Tax Preservation: Guidelines

The Ministry of Finance has laid down the following guidelines for investing in tax saving fixed deposits.

Maturity: 5 years

  • Minimum investment: Rs. 100 and more of it
  • Maximum investment: Rs. 1,50,000 (Circular No. / 2013/2017, F.No.142/09/2017  Increased from Rs. 1 lakh to Rs. 1.5 lakh as per TPL)
  • To discount available: Private, HUF
  • Mat Premature withdrawal: Not available
  • Advantage against this FD: Not available
  • Interest rate: Paid by the bank from time to time
  • Tax on interest earned: According to individual income tax slab rate
  • TDS 10% on Interest

The interest rate paid on these tax-saving fixed deposits is decided by the bank with which the investment is made. You can check the rates offered by different banks as given below table-

Fixed Deposit interest Rates 2021

Last Updated 16th Jul 2021

The fixed deposits interest rate varies on factors such as Government policies, economic conditions and liquidity conditions in the market.

Banks

FD Interest Rates

Senior Citizen FD Interest Rates

Tenure

HDFC

6.20% - 6.65%

6.00% - 6.50%

33 months to 99 months

PNB Housing Finance

5.90% - 6.70%

6.15% - 6.95%

12 months to 120 months

Bajaj Finance

5.65% - 6.50%

5.90% - 6.75%

12 months to 60 months

SBI

2.90% - 5.40%

3.40% - 6.20%

7 days to 10 years

IDFC First Bank

2.75% - 6.00%

2.75% - 6.50%

7 days to 10 years

Axis Bank

2.50% - 5.75%

2.50% - 6.25%

7 days to 10 years

 

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Income Tax Form 10 E

Effective annual the interest rate on fixed deposits for tax protection

The following table shows the effective interest rates on such fixed deposits at an interest rate of 8.5%. 

S. No.

Particulars

Amount (Rs.)

Slab Rate – 30%

Slab Rate – 20%

Slab Rate – 10%

A

Amount Invested

10,000

10,000

10,000

B

Immediate Tax Saving         (assuming 30% Slab Rate)

3090

2060

1030

C

Effective Investment  (A-B)

6910

7940

8970

D

Maturity Amt of Original Investment (Interest @8.5% p.a.)

13,382

13,382

13,382

E

Total Pre-Tax Benefit on Deposits (D-C)

6,472

5,442

4,412

F

Effective Annual Yield (5 years)

14%

12.50%

10.50%

To invest in such tax-saving fixed deposits which are allowed as a discount under section 80C, the investor has to submit an application for the same at the time of deposit and also submit a copy of his PAN card to the banker.

 

These investments can be made in either a single name or a joint name. Investing in a joint name, only the 1st holder can claim this discount and the 2nd holder will not be able to avail the benefit of Section 80 discount for investing in this type of tax saving fixed deposit.

 

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Salary Structure of the Non-Govt Employees

The difference between tax-saving fixed deposit vs. PPF investment

 PPF, as well as tax-saving fixed deposits, are both regular income-earning investments that give the investor a predetermined guaranteed return. In addition, an investor can also claim a maximum discount of Rs. 2,000 / -. 50 150,000 to invest in any one of these investments.

However, there are some differences between PPF and Tax Saving Fixed Deposit which are discussed below: - 

Particulars

Tax Saving Fixed Deposit

PPF

Maturity

5 years

15 years

Deduction is available u/s 80C

Rs, 1,50,000

Rs. 1,50,000

Interest Rate

Fixed by the Bank*

Fixed by the Govt*

Tax on Interest earned

As per Income Tax Slab Rate

Exempt

Premature Withdrawal Facility

Not Allowed

Maturity after 5 years

Available from 5th year onwards but only to a certain extent

Loan Facility

Not Allowed

Maturity after 5 years

Can be availed from 3rd year onwards

 

(* Although the interest on tax-saving FDs and PPFs is fixed by different companies, they are almost the same with only slight differences)

 

PPF is a better instrument than tax-saving fixed deposit. However, the only drawback of PPF is the long maturity period. If a person feels comfortable in the long run, he should opt for PPF for tax saving fixed deposit.

 

And if you have already invested a maximum of Rs 1.5 lakh in PPF, after which you can invest in tax saving fixed deposit.

 

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Income Tax computed Sheet

Income Tax Form 10 E
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6) Automated Income Tax Revised Form 16 Part B for the F.Y.2021-22